THE NEW CAUTIOUS OPTIMISTS

Faster than you can say â€œrisk averse,â€?
investors are getting back into the thrill of trying to
strike pay dirt online. Brokerage firms, in a $1 billion marketing
blitz, want to know all there is to know about those who dare to
invest, bubble or no bubble.

MIKE LAURIA, 45, A COMMERICIAL AIRLINE PILOT, says he's
managing about $100,000 in an online brokerage account mostly for
the thrill of it.

â€œI'm not a stock market junkie; for me this is a fun
little hobby that's also profitable,â€? he says.

Lauria made his first online stock trade in 1998 on E-Trade, and
after testing out several of the other brokerage firms, remains an
E-Trade customer, averaging 200 trades per quarter, a little over
two a day. His investing pace slowed during the downturn of 2000,
but not much, he says. Last year alone he claims to have made
$50,000 on his online investments. Lauria's minimum online
investment is about $5,000; his maximum is about eight times that
amount.â€œI don't like to be exposed much beyond
$40,000,â€? he says.

Thanks to his high volume of trading, Lauria qualifies as a
â€œPower E-Trader,â€? allowing him access to a hotline for
speedy technical assistance whenever he has questions about
E-Trade's services.

â€œI tried out Ameritrade last year when they had a
promotion offering a lot of free trades, but I was unhappy with
their setup. I didn't get rapid confirmations of my actions, and
when I wanted to short stocks, it didn't update me as quickly as
E-Trade did on the stock's availability,â€? says Lauria. He
prefers E-Trade's Web screens, which show rising stocks in green
and falling stocks in red, all on one page with a flashing button
that readily alerts him to availability if he wants to short a
stock. He does his own research, and follows 40 stocks regularly,
including 20 on a closely watched list.

â€œI can tell you at any moment what those 20 stocks are
doing, and I check them constantly,â€? he says. He tracks the
30-, 60- and 90-day performance charts of stocks he's interested
in, and is a close follower of CBS Marketwatch's online
recommendations for stocks to watch. He tunes in daily to cable
TV's CNBC.

â€œCNBC doesn't have any real competition. It's the only
financial news any of us watch, including my friends who are also
investors,â€? he says.

Quick execution of trades is important, but whether it's
guaranteed within five seconds, or within nine seconds as E-Trade
promises with its â€œPower of Nineâ€? campaign, is
irrelevant to Lauria. Although he is happy with E-Trade, Lauria is
now considering switching to Fidelity Investments, which recently
implemented an $8 flat fee for trades or limit orders for anyone
who makes at least 120 trades per year (versus E-Trade's current
$9.99 fee). He checks in with E-Trade every day, and on days he's
not flying he's likely to make at least a few trades.

As confidence rises with improving stock market conditions, the
major online brokerage firms are turning bullish as they pursue a
far more sophisticated consumer than the soccer-mom day trader
making a killing in her kitchen during the late 1990s. The top five
online brokerage firms have boosted advertising significantly this
year to capture customers as individual investors emerge from a
three-year hiatus and return to the stock market.

Targeting a warier and more tech-savvy customer than the
newcomers who helped set the heady tone for the online brokerage
industry in the 1990s, the new goal is to lure the most active and
experienced traders who generate the most profits through the fees
they pay for each trade. â€œThe true active trader, who
generates upwards of 120 trades a year, represents about 20 percent
of the market but accounts for about 80 percent of the
profits,â€? says Dennis Ceru, director of retail brokerage and
investment for the Needham, Mass.-based research firm
TowerGroup

E-Trade Financial Corp. is expected to increase its overall
advertising spending to $90 million this year, up from around $40
million last year; Charles Schwab & Co. is expected to spend
between $80 million and $100 million this year, an increase of as
much as 50 percent, while Ameritrade Holding Corp. will spend at
least $60 million, and TD Waterhouse Investor Services, Inc., is
expected to spend more than $50 million in advertising.

Although brokerage firms are experiencing solid profits from the
heavier trading volume of the past several months, many analysts
predict the stock market upswing may not last beyond a year, and
the online brokerage industry will likely face consolidation in
order to maintain growth and profits through greater efficiencies
and economies of scale.

Within the last few months E-Trade toyed with the idea of
swallowing rival TD Waterhouse, which could upset the lead
Ameritrade had gained when it purchased competitor Datek in
2002.

â€œEventually this bubble will burst like the last one, but
meanwhile the importance of trading volume to profits cannot be
overstated for online brokerage firms,â€? says Adam Josephson,
an analyst in the securities and investment group of the
Boston-based research and consulting firm Celent Communications.
â€œOnline brokerage firms are therefore devoting large amounts
of their resources to targeting those who trade most
frequently.â€?

What's at stake is an estimated 22 million U.S. households
representing about $6 trillion in assets, say analysts.

Schwab estimates that about $600 billion in investor funds is in
flux at any given moment, and within that group, most of the online
brokerage firms are chasing the most lucrative,
â€œactiveâ€? investors who each make at least 10 trades per
month. (So-called day traders, or amateur arbitrageurs, make as
many as thousands of trades per day; higher trading volume commands
lower fees.)

Latest up in the battle for market share is a price war over
trading fees, advertising that touts five-second transaction
executions, streaming news, real-time data and the ability to make
trades from cell phones and PDAs.

Investors have responded by pouring money into stock funds
through the first part of this year at rates not seen since
February 2000, according to fund-tracking firms.

But it's a much different scene today than in 1999, when
Ameritrade's copy machine guy, Stuart, lightheartedly advised
â€œMr. Pâ€? in a TV commercial to dive into online
investing with the battle cry: â€œLet's light this
candle!â€?

Investors are moving more carefully this time, remembering the
sting of stock market declines that began in 2000 and continued
through last year.

Despite a gradual rise in stock market values beginning in early
2003, the overriding investor mood now is â€œcautious
optimism,â€? according to a survey of 515 people conducted by
Schwab in December 2003, with a solid majority (66 percent)
describing themselves as cautious rather than confident (34
percent).

â€œWhen the stock market began to show gains last year,
investors said, â€˜I've been here before, but can I trust
this?â€™ They're feeling very cautious, but they still want to
get back into the market when it's going up,â€? says Rob
Steidle, director of competitive intelligence at Ameritrade Holding
Corp.

When it comes to tweaking their advertising to reflect
up-to-the-minute changes in markets and national confidence, the
online brokerage firms are among the most obsessive.

Unlike consumer packaged goods marketers, financial service
advertisers are quick to turn around newspaper and direct mail ads
to reflect new rates and fees, and online brokerage firms also tend
to be quick to respond to new developments with TV spots.

Most online brokerages constantly test their own and their
competitors' advertising, along with the ease of use of their
online products, in proprietary â€œusability labs.â€?

But as the online brokerage sector has matured along with
computer technology and widespread high-speed Internet access among
investors, product differentiation has begun to blur, say industry
analysts.

As a result, the subtleties of brand image will play a bigger
role in determining the success of the major online brokerage firms
during the next 12 months, says TowerGroup's Ceru.

â€œEach of the brokerage firms now has the same very
sophisticated computer systems, and very similar products. The
competitive edge has become price, service, brand, reputation and
trust, not pure technology or speed like it was a few years
ago,â€? says Ceru.

Rational reasons to choose one brokerage firm over another will
prevail in advertising, unlike some of the high-profile antics
online brokers used in the early 1990s to build awareness of
investing's electronic frontier.

â€œAdvertising was very light and bubbly when people were
just discovering online brokerage services, with jokes and animals
and Super Bowl spots and guys like Stuart,â€? says Ameritrade's
Steidle. â€œThen the crash happened and advertising became very
dark and serious, about protecting your assets and trying to
maintain your status. Now, consumers want to test the waters, but
they have a lot more choices out there and brokerage advertising is
becoming entertaining again, with a sense of exciting
possibilities,â€? he says.

Media buyers expect online brokerage to drive a significant
amount of advance media sales for this fall, during television's
â€œupfrontâ€? media buying season that occurs this spring,
although none would specify their plans.

â€œThe national upfront TV market got extremely expensive
last year, so we're taking a close look at things this year before
making commitments because we want to get the best value,â€?
says Janet Hawkins, executive vice president of marketing for TD
Waterhouse Investor Services in New York.

One of the most significant developments in the online brokerage
sector this year has been Schwab's decision to aim its products
more squarely at upscale customers with $100,000 to $1 million to
invest, competing directly with full-service brokerage firms and
marking a clear break with its discount-broker roots.

â€œI think the press has hung on to the idea of Schwab as a
discount broker for a lot longer than we have,â€? says Beth
Stelluto, Schwab's senior vice president of enterprise marketing
communications. â€œWe've always had a wide range of investors,
and now we're definitely going after upscale investors, and
everyone from the emerging investor to the super-affluent
one,â€? she says.

In a campaign which began in February, the company introduced
Schwab Personal Choice, an expanded menu of investing services
which includes more ways to get advice from brokers in person, over
the phone or online, as well as bare-bones online plans that are
strictly self-service.

Stelluto says Schwab's research showed latent demand for
investment advice by people who also like to manage their own
stocks. The result is a kind of mass customization of services,
versus the more starkly do-it-yourself, no-advice online investing
services offered by the other online brokerage firms.

Schwab uses a tongue-in-cheek approach to introduce Personal
Choice in three 30-second national TV spots to show how a few
friends can have totally opposite needs for investing advice. One
spot centering on three women at lunch concludes with the line:
â€œWho knew finding the right broker would be harder than
finding the right man?â€?

Print ads in national newspapers and magazines, plus direct mail
offerings, support the launch. Austin,Texas-based GDS&M is
Schwab's agency and media buying is handled in-house.

But the premise that people may suddenly decide to seek out
investment advice due to portfolio or market changes is
far-fetched, says Jaime Punishill, a principal analyst with
Forrester Research in Cambridge, Mass.

â€œOur research shows that people have an inborn investment
style, which makes them inclined to do their own research, or seek
out help, and it doesn't matter what's going on with the market or
with new technologyâ€? he says. â€œBy now, everyone who's
interested knows about online investing, and the idea that people
are going to rush to get investing advice now, because more of it
is available, is just not true,â€? Punishill says.

Each week since 1999, Ameritrade has been conducting telephone
interviews with 75 different randomly selected U.S. households
about their attitudes toward investing online. The survey provides
an ongoing tracking of consumers' mindsets, which informs
Ameritrade's advertising, says Steidle.

â€œWe ask questions about consumers' concerns about the
economy, and their jobs, and what is a good investment, and it lets
us know which online investment brand has high unaided awareness,
so we know where we should dial our advertising up or down, and on
what issues,â€? he says.

In addition, Ameritrade conducts in-depth interviews with its
online customers each quarter, to refine its products and tools.
When the company purchased rival online brokerage firm Datek in
2002, customer panelists told Ameritrade which best features of
each service to integrate into a unified offering, says
Steidle.

Recently, Ameritrade asked its customers for their opinions
about investment advice, which the firm, like most of its rivals,
does not offer.

â€œA small percentage said advice is something they needed.
Surprisingly, 25 percent said they already have a financial
adviser, which tells us those people are doing a combination of
self-directed investing plus getting input from a broker, and they
are satisfied with our offering,â€? says Steidle.

Ameritrade's current advertising campaign, themed â€œGood
idea, bad idea,â€? promotes its five-second trade execution
guarantee and its trademarked â€œStreamerâ€? real-time
market information. The TV spots, which broke last October, show
how speed can be good (as in executing a quick trade order) and bad
(when food is undercooked at a restaurant). Although longtime
agency Ogilvy & Mather in New York, created the four 30-second
spots that are airing on national TV, Ameritrade nevertheless
tested the spots internally and recommended key adjustments in the
creative, says Steidle.

On March 2, Ameritrade purchased its first-ever media
â€œroadblockâ€? across all broadcast financial media, to
grab the attention of all investors by sponsoring the closing hour
of the market on all financial Internet and cable TV channels. A
humorous TV spot showed all the diverse things that could happen in
one hour. It was an example of the type of creative media placement
Ameritrade deploys via Ogilvy's sister media-buying agency,
Mindshare.

Early this year Ameritrade opened its first dedicated offices
for customers, including two in Portland, Ore., and one in
Scottsdale, Ariz., as part of a test.

â€œWe want to see how it benefits us to have offices where
customers can get information about using Ameritech, or to pick up
a check or make a payment. It is not a bank,â€? says an
Ameritrade spokeswoman.

Indeed, having a network of 150 branches nationwide and a bank
(Canada's Toronto Dominion Bank) is one of the keys in recruiting
and maintaining customers for TD Waterhouse, says Hawkins.

Although TD Waterhouse offers no investment advice, its
customers have access to a nationwide network of ATMs that can be
linked to online brokerage accounts, which it promotes along with
its value proposition of rich research tools, reliability and fast
turnaround on orders.

TD Waterhouse's current TV campaign, which began last November,
features Sam Waterston of NBC's Law & Order, who says:
â€œWhy pay all that money to Merrill, Schwab or some other
higher-priced broker, when you can switch to TD
Waterhouse?â€?

â€œWe tested a number of actors for the spots, but Sam
Waterston tested very high on credibility, which is what our
research showed investors want in the current economy,â€? says
Stephen Crane, executive creative director for agency Cosette Post,
New York, which created the campaign. Media Edge: cia, New York,
handles media buying across national and cable TV, plus financial
print vehicles.

E-Trade, whose positioning is similar to Ameritrade, broke its
first new advertising in February through new agency
Martin/Williams of Minneapolis, using a breathless sense of urgency
in two of a total of four 30-second spots, spiked with humor.

One spot, showing a man chasing a woman across town with a bag
of money, marks the first time an online brokerage has exploited
the opportunity to provide rebates to mutual fund investors through
the â€œ12b-1â€? program. The amount of money returned is
incremental, paid every six months, directly into the mutual fund
investor's account, but E-Trade is the first to promote it;
analysts say other brokerage firms may follow suit later this
year.

A second TV commercial touts E-Trade's Mortgage on the Move
product (E-Trade Bank is part of the company's diversified
offerings, after making 21 acquisitions since 1996). The spot shows
the consternation of homeowners who will have to pack up and move
when a rowdy family arrives next door.

â€œThe ads set out to get people to question their current
financial behaviors and realize there is a better way,â€? says
Tom Moudry, Martin/Williams's executive creative director. Media
buying is handled in-house.

E-Trade currently has eight walk-in branches in the U.S., with
plans to expand to 20 by year-end, says a spokeswoman.

â€œWe've been in the brokerage business for a long time, but
we've never promoted it before, and our goal is to pull active
traders from other online brokerage competitors,â€? says Groak,
adding that more brokerage-specific advertising is in the pipeline
for later this year.

The TV campaign, created by Arnold Worldwide in Boston, is
themed: â€œPower. Price. Service. No compromises.â€?
(Fidelity has been shopping for a new advertising agency since last
fall.)

One 30-second TV spot shows a man wrapping up a brisk day of
trading in his cubicle, surrounded by computer screens. The camera
cuts to reveal he's actually in a home office, and his little girl
runs to greet him.

â€œWith this advertising, we wanted to speak directly to our
customers, who tend to be very independent and do their own
research, to show them our improved services and to prove that our
offer is unbeatable,â€? says Groak.

Fidelity's brokerage services are being promoted on TV via
national and cable financial TV programming; in print ads, created
in-house, running in financial publications, and through direct
mail. Media buying is handled in-house.

â€œI'm not all that confident that any lessons were learned
[by the downturn of 2000],â€? says John Nofsinger, a finance
professor at Washington State University in Pullman, Wash., and
author of the book, The Psychology of Investing (Prentice
Hall, 2002), which is used in several national certification
programs for financial advisers.

â€œAlthough a lot of people lost money in the last downturn,
they see the market going up now and they think it's a good time to
get back into the stock market, which is actually irrational. If
the market has already gone up, it means you missed the
opportunity. Jumping in and out of the stock market is a loser's
game, and the old fact remains that a buy-and-hold strategy is the
wisest,â€? says Nofsinger.

High Sights

After the bubble burst at the end of the millennium, many
lower-income and casual traders left their day trading ways behind.
Now, online brokers are targeting the high-income investors who
remained in the market and have the capital to make more
trades.